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1991 (3) TMI 28 - HC - Income TaxBonus Shares, Burden Of Proof, Business, Business Expenditure, Company, Donation For Charitable Purposes, Expenditure On Transit House, Export Incentive Scheme, Foreign Exchange, Foreign Loan Liability, Income, Special Deduction
Issues Involved
1. Taxability of export incentive schemes and cash subsidy. 2. Classification of exchange fluctuation expenditure as capital expenditure. 3. Classification of filing fees for increasing share capital and fees for issuing bonus shares as capital expenditure. 4. Deduction eligibility for donations under section 80G. 5. Deduction of expenses on maintenance of transit bungalows. 6. Deduction of miscellaneous expenses and law charges for a proposed cement factory project. 7. Taxability of unclaimed wages written back under section 41(1). Detailed Analysis 1. Taxability of Export Incentive Schemes and Cash Subsidy Issue: Whether the benefit received under export incentive schemes and cash subsidy on controlled cloth are taxable under the Income-tax Act, 1961. Judgment: The court followed the decision in Kesoram Industries and Cotton Mills Ltd. v. CIT [1978] 115 ITR 143, answering in the affirmative and in favor of the Revenue. Both the export incentive and cash subsidy were held taxable. 2. Classification of Exchange Fluctuation Expenditure Issue: Whether additional expenditure due to exchange fluctuation is capital expenditure. Judgment: Following the decision in Union Carbide India Ltd. v. CIT [1987] 165 ITR 678, the court answered in the affirmative and in favor of the Revenue, classifying the expenditure as capital. 3. Classification of Filing Fees and Fees for Issuing Bonus Shares Issue: Whether filing fees for increasing the authorized share capital and fees for issuing bonus shares are capital expenditures. Judgment: The court followed Union Carbide India Ltd. v. CIT [1987] 165 ITR 678 for filing fees and an unreported decision in Woodcraft Products Ltd. v. CIT for fees for issuing bonus shares. The filing fees were classified as capital expenditure, while the fees for issuing bonus shares were not. 4. Deduction Eligibility for Donations under Section 80G Issue: Whether donations made to Vishwa Mangal Trust qualify for deduction under section 80G. Judgment: Following CIT v. Upper Ganges Sugar Mills Ltd. [1985] 154 ITR 308, the court answered in the affirmative and in favor of the Revenue, disallowing the deduction. 5. Deduction of Expenses on Maintenance of Transit Bungalows Issue: Whether expenses on maintaining transit bungalows are deductible as business expenses. Judgment: The court declined to answer, directing the Tribunal to dispose of the issue afresh in light of Kesoram Industries and Cotton Mills Ltd. v. CIT [1991] 191 ITR 518, allowing additional evidence if necessary. 6. Deduction of Miscellaneous Expenses and Law Charges for Proposed Cement Factory Project Issue: Whether expenses incurred for a proposed cement factory project are deductible as business expenses. Judgment: The court held that the expenses were revenue in nature, following the principle that expenses for expanding an existing business are deductible. The court referenced multiple High Court decisions, including CIT v. Alembic Glass Industries Ltd. [1976] 103 ITR 715, and concluded that the expenses were connected with the running of the business and thus deductible. 7. Taxability of Unclaimed Wages Written Back under Section 41(1) Issue: Whether unclaimed wages written back in the profit and loss account are taxable under section 41(1). Judgment: The court held that the unclaimed wages, including bonus and leave wages, forfeited by the assessee, are taxable. The court emphasized that the conduct of the assessee and the long passage of time indicated a cessation of liability. The court referenced CIT v. Agarpara Co. Ltd. [1986] 158 ITR 78, and concluded that the forfeited amount should be assessed under section 41(1). Conclusion The court's detailed analysis addressed multiple issues related to the taxability and classification of various expenditures and incomes. The judgments were primarily in favor of the Revenue, with specific directions for re-evaluation in certain cases.
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